People have always expected more from their leaders, even when they understand that expectations are similar to a quenchless thirst, the more you get the more you want. Today’s leaders fully recognize that an educated population is essential to improving lifestyles and will question each and every decision along the way, thus challenging the leadership. Many wanting to go slower, study and analyze the direction plotted and take stock of progress. Others want to go faster, build and expand upon the existing facilities and provide for the future now. This division is political and if the “many” outnumber the “others”, the election winners set the agenda, the pace and are responsible for the state of the economy. Hence, all public financial projections or budget statements are political in nature.The need for regulations and oversight of every line item in a budget is to prevent small mistakes from becoming large scale corruption. Not just regulations; because rules by themselves cannot and should not prevent innovation but monitoring to identify change and predict the effects of each particular resulting action on the economy.
Case in point, selling a product under cost, a loss leader, is a marketing strategy that works well in the trade sectors where there are other supporting products that can generate the absent earnings of the product assigned as loss leader. Clearly this strategy cannot work with only one product, banks trade in money to earn interest income (fees for safety deposit boxes and other services are inconsequential), presented in many innovative ways to attract customers, banks main source of revenue is interest and if it sells depositors’ money for less than they pay the depositors, banks will lose money.
Financial Regulators have seen this when they permitted high ticket items (appliances, vehicles, etc.) retailers to sell their products to the public on terms of no down payment and zero interest over a particular time period, essentially granting them license to lend money and operated as a financial institution without adequate oversight. Extending this philosophy to the real estate market is innovative, but consider the down side. When a customer does not pay as scheduled, repossessions and auctioning to recover at least the book value and hopefully reduce the overall loss, is the right course of action only when the item is in demand. But once supply exceeds demand market values decease, losses accrue and bad mortgages, unlike a non-performing loan on an appliance or a vehicle, result in the displacement of families, increase in unemployment and as a consequence economic recession. Periodic reporting of all consumer based credit will serve to analyze and protect the economy.
When retailers sell bad or defective products the resulting call backs affects the brand manufacturer and its entire distribution channel, when restaurants serve bad food they are closed down along with the horrendous foods’ supply chain, when financial institutions make bad loans and mortgages they get more money.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
